Chapter 11 Quiz

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The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

the CPI better reflects the goods and services bought by consumers

In 1979 and 1980,

the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising oil prices.

The goal of the consumer price index is to measure changes in the

cost of living

Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. If the nominal interest rate was 8 percent in 2010, then

the real interest rate in 2010 was 3 percent

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. Josh Holloway's 2013 income in 1944 dollars is

$16,923

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2014 spending in 2009 dollars is about

$40,000

Will's expenditures on food for three consecutive years, along with other values, are presented in the table below.

$6,380

Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

$65,625

Changes in the quality of a good

can lead to either an increase or a decrease in the value of a dollar

The CPI is a measure of the overall cost of

the goods and services purchased by a typical consumer

The steps involves in calculating the consumer price index and the inflation rate, in order, are as follows:

- fix the basket - find the prices - compute the basket's cost - choose a base year and compute the index - compute the inflation rate

The following table shows the prices of good X and good Y for 2013-2015. In addition, assume the basket of goods used to compute the Consumer Price Index consists of 3 units of good X and 4 units of good Y. If the base year is 2014, the value of the Consumer Price Index in 2013 is​

58.8


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